Senate passes Inflation Reduction Act

Posted at August 24, 2022 Posted In Carbon Capture, Investing

The Inflation Reduction Act of 2022 was voted on the weekend of August 6-7 and was passed by a 51-50 party-line vote.

It’s my personal view that whatever was described in this act — you can expect the opposite to happen.

This bill aims “to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030”.

There are a lot of items on this piece of legislation incentivizing cleaner energy and reduced use of energy. There are also major changes related to healthcare and taxes and several other domestic programs.

Today, I want to highlight some key points that I think will affect you as an investor and specifically how they relate to investment opportunities we offer or are planning to offer.

What happens to taxes?

The bill will give $80 billion to the IRS over the next 10 years to expand its audit capabilities, as well as a bevy of technology upgrades.

The politicians will tell you they are targeting the rich that don’t pay their fair share of taxes, but IRS audits generally are not targeted that way.

This is because the rich can afford to pay professionals to help them implement strategies to use the tax incentives the way they are designed.

They are able to document all their activities completely so that they are completely in compliance with the tax codes.

Most tax cheating occurs within the middle class who generally pay a significant share of their income in taxes but can’t afford the professionals that the rich can afford.

My advice is make sure you document everything properly so that you don’t have to worry about a tax audit.

Supporting Clean Energy

The IRA includes more than $135 billion in clean energy tax credits and $60 billion in spending designed to increase domestic production of clean energy and transportation technologies.

The IRA has several provisions intended to boost EV adoption. Here are some major changes:

The existing credit was capped after a manufacturer sold 200,000 EVs in the U.S. The new credit would not be capped for individual automakers and would be available through 2032. Tesla, Toyota and GM have already reached their 200,000-vehicle limit.

Vehicles complying with either critical mineral or battery component requirements would be eligible for tax credits of $3,750 each, or $7,500 if a vehicle meets both. In addition, a lower tax credit of up to $4,000 would be extended to used cars for the first time.

Buyers would be able to use the credit as part of their down payment or as cash-back from the dealer. The current EV tax credit requires buyers to wait until they file their taxes in the following calendar year to receive the value of the credit.

Cars with a manufacturer’s suggested retail price over $55,000 and vans, pickups and SUVs costing over $80,000 would no longer be eligible for the credit.

Battery EVs require a lot of various types of metals which can only be sourced through mining operations. However, mining strategies and operations are very complex.

Over the next several years and possibly decades there could be a huge opportunity to invest and profit from this need to not only build more EVs, but also to expand the electric system needed to support it.

At MRAP, we will continue to network and look for opportunities in this space that we determine can be profitable opportunities to bring to our investor base.

How This Affects Carbon Capture

Carbon capture and sequestration (CCS) is one of the key tools needed to hit future net-zero targets, but its development has been hampered by issues related to the 45Q tax credit, among other issues.

The IRA includes several changes for CCS, the biggest difference being the structure of the 45Q credit itself. The credits would jump to $85 per metric ton (MT) for CCS and $60/MT for carbon capture use and sequestration (CCUS) or enhanced oil recovery (EOR).

Under current law those credits will hit $50/MT and $35/MT, respectively, in 2026, then grow with inflation. This aspect of the IRA will likely have the biggest impact on the investments MRAP offers.

Increasing the value of the carbon credits will lead to increased demand for CETA’s CO2 Scrubbing Equipment for the next several years.

Blue hydrogen (hydrogen from splitting a CH4, methane, molecule) would receive some form of production tax credits (PTCs) for hydrogen production using steam methane reforming and CCS.

Using hydrogen to power hydrogen fuel cell EVs would definitely help the transportation industry lower their carbon footprint.

Exxon has recently announced that they will build a hydrogen production facility in SE Texas and they have ordered many CO2 Scrubbers from CETA to use in this process.

This aspect of the IRA could also increase demand for CETA’s CO2 Scrubbing Equipment.

Additional Items of Concern

The following key items are excluded from the scope of the bill:

State and local tax (SALT) deductions, or the the ability to deduct state and local taxes.

  • The $10,000 cap which coastal Democrats were hoping to repeal will not be changed by the IRA.
  • This is just more reason to develop tax strategies that fit your financial goals and hopefully lessen the impact of the $10,000 cap on SALT deductions.

Tech companies will bear the brunt of two major tax increases in the bill.

  • 15% minimum tax on financial statement profits, and a new levy on stock buybacks which have allowed companies like Alphabet’s Google and Meta’s Facebook to minimize their tax burden over the years.
  • This will affect cash flow at these types of businesses which would make them less attractive to investors.

How Will You Use This Bill To Your Advantage?

Our team is dedicated to connecting you with advantageous investment solutions that can reduce your tax burden, protect your wealth, and produce passive-cash flow.

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